Firm News

As of 1 July 2018, the Government will introduce a new measure that allows the contribution of up to $300,000 of proceeds from downsizing a home to be added to superannuation.

The new measure will benefit those aged 65 years and over, provided they meet certain eligibility rules including:

The amount you are contributing is from the proceeds of selling your home where the contract of sale was exchanged on or after 1 July 2018.

Your home was owned by you or your spouse for 10 years or more prior to the sale.

Your home is in Australia and is not a caravan, houseboat or other mobile home.

The proceeds from the sale of the home (capital loss or gain) are exempt or partially exempt from CGT under the main residence exemption, or would be entitled to such exemption if the home was a CGT rather than pre-CGT asset.

You have provided your super fund with the downsizer contribution form either before or at the time of making your downsizer contribution.

You make your downsizer contribution within 90 days of receiving the proceeds from the sale (usually the date of settlement).

You have not previously made a downsizer contribution to your super from the sale of another home.

Property investors can access a wide range of tax deductions and items subject to depreciation for their rental property yet many miss out on unknown tax breaks, foregoing an average of $20,000 a year on a $1 million house.

Here are four ways to maximise your tax deductions while complying with the tax office:

Use a quantity surveyor

Registered quantity surveyors can establish the value of purchased items and building construction costs by preparing depreciation schedules to maximise an investor’s claim.

Items as diverse as kitchen equipment, bathroom fittings, outdoor furniture, air conditioning and swimming pools are all legitimate claims. A quantity surveyor will ensure valuations of the items in the building are at market value, avoiding the need to explain any valuations that are higher than expected to the ATO.

The cost of using a quantity surveyor is also tax deductible.

Apportion expenses

It is common for investors to bundle a mix of properties under one single loan, i.e. the family home and a rental property may be funded by the same mortgage and expenses apportioned accordingly. However, having separate loans can increase deductions as the non-deductible debt can be paid down or even better linked to an offset account, with the deductible loan having full interest paid and claimed.

Immediate write-offs

An immediate write-off applies to items worth less than $300 and can be claimed in the current income year. Items such as garden gnomes, kitchen cutlery and ironing boards, irons are easily forgotten and all can be written off in the first year.

Depreciation

Construction costs can generally be ­depreciated at 2.5 per cent each year over 40 years for residential properties built after July 1985. This entitlement passes from one owner to the next whenever the property is sold. A quantity surveyor can provide an estimate if information is not available.

Many high value household items are now deducted using the “diminishing value method”, which means the most depreciation happens in the first few years. For example, ducted heating worth $4941 would have a first-year deduction of $493, rising to $2022 over the first five years.

Adding items such as solar lights, garbage bins, garden sheds, intercom systems and closed-circuit television systems to a low-value pool can open up ways to depreciate items at a higher rate, therefore, increasing immediate returns.

Setting up your self-managed super fund can be a daunting process; you want to ensure you are covering all legal requirements throughout the process.

The Australian Taxation Office has outlined steps to take when setting up your SMSF to ensure you are eligible for tax concessions, able to receive contributions and looked after if a trustee is unable or decides they no longer wish to be the active trustee.

When setting up your SMSF, you ought to consider the following:

Whether you wish to appoint a professional financial advisor to help you. If you do not have any experience with super regulations, this is a wise approach. Laws and regulations are constantly changing, and it is safest to work with someone who knows what they are doing.

Decide whether to have individual trustees or a corporate trustee. Generally, a corporate trustee structure often costs more money to set up but removes individual liability as the SMSF acts under the company’s name.

Ensuring all SMSF members sign a trustee declaration within 21 days of becoming a trustee or director of the corporate trustee.

Tax File Number (TFN) and an Australian Business Number (ABN). You will then need to provide the ATO with each members’ TFN so that they can receive appropriate tax concessions.

Ensuring a trust deed is created and is a legally-recognised document signed by all SMSF members. The trust deed needs to discuss how to establish and operate the fund.

Fund must be registered with the ATO. You should also elect the fund to be regulated by the ATO.

Set up a bank account for the SMSF and an electronic service address.

Prepare an exit strategy. This should include details pertaining to the process for appointing an individual as an enduring power of attorney.

Should you follow all of these steps, the SMSF you are setting up will be compliant with SMSF regulations. Once these aspects are considered, you need to make sure all SMSF trustees are compliant with super and tax laws. These laws are often being updated, so staying educated on current compliance issues is paramount to the success of the SMSF.

The Australian Taxation Office is continuing to pay close attention to claims made as ‘work-related expenses’ throughout 2018.

Making incorrect claims of work-related deductions can land you in hot water with the ATO, and thus it is important you can justify these claims. In order to claim correctly, you must be able to show that:

You spent the money yourself and were not reimbursed.

The expense was directly related to earning your income, and

You have appropriate records and documentation to prove it.

If you are making a claim for an expense that you use for both business and privately, you may only claim the portion of the expense that was related to business.

Running a self-managed super fund can be a great strategy for your super and your retirement, provided you manage it correctly.

To ensure you can enjoy the later stages of life and retire comfortably, you will need to be aware of common SMSF mistakes and how to avoid them.

Record keeping

Bad record keeping when it comes to SMSFs is very common and very problematic. If the ATO decides to look into your SMSF and your record keeping is subpar, you and the rest of the members of the fund could land themselves in hot water. Good record keeping practices are a great preventative measure for being liable for fines and penalties should the ATO choose to investigate the fund. It is also a great habit to get into as proper documentation makes all decision making regarding your fund much more legitimate.

Financial assistance or loans to members

By law, you cannot loan or offer financial assistance to a member of the self-managed super fund at any time, either directly or indirectly. Many members entertain the mindset that because it is their money, they can allocate loans to other members and to themselves, but this is not the case. Should the ATO catch a member of an SMSF doing this, they will face harsh penalties. They may also lose all concessional tax benefits, which impacts the whole fund and not just the guilty member.

Contribution cap

According to the Australian Taxation Office, if a member of a self-managed super fund makes a contribution or their contributions in any given financial year exceed the contribution caps, they may be liable for an additional tax on the excess contributions. As of 1 July 2017, the contribution cap for all members of an SMSF regardless of age is $25,000 which is taxed at a rate of 15 per cent. If members contribute over this amount, they could be taxed at 47 per cent on additional contributions.

Education

For the most part, most mistakes or errors surrounding your SMSF and the management of the fund can be avoided if you and the other members in the fund educate themselves on rules, regulations and strategies to remain compliant. With the internet available virtually everywhere, you can always read up on and stay up to date with ways to run the SMSF effectively. Just beware of where you are getting your information from and ensure it is a trustworthy site. You can also always speak to your financial advisor for guidance and advice.

While we like to think of business ventures as a platform to make money, there are also many expenses that will be incurred through running one.

Luckily, there are many tax deductions a business owner can claim when it comes to the expenses their business incurs, in particular their legal expenses. Understanding what these tax deductible expenses are and how to apply for these deductions appropriately can see you save a considerable amount of money, which can be transformed into profit.

Specific expenses incurred will or won’t be deductible depending on whether the expenditure is capital, domestic or private in nature. The following expenses are not deductible under regular legal expense deductions, due to being either capital or private in nature. Deductions can be claimed under a separate provision. These include:

Preparations of income tax return

Obtaining professional tax advice

Borrowing expenses

Mortgage discharge expenses

Preparation of leases

The circumstances in which legal fees incurred can be easily deducted for tax purposes, provided the correct procedure is followed and appropriate criteria is met, include the following:

Defending wrongful dismissal action, defending defamation action brought against a company board and defending unauthorised use of trademark.

Pursuing claims for workers’ compensation.

When negotiating current employment contracts with existing employees.

Recovering misappropriated business funds.

Arbitration when settling disputes.

Recovering wages of an employee due to a dishonoured cheque.

Evicting a rent-defaulting tenant.

Opposing certain neighbourhood developments.

Tax deductions on the above listed legal expenses are a guide, and will be determined on a case by case basis, depending on the specific circumstances relating to each case.

There are also a number of situations in which legal expenses are commonly incurred and are not tax deductible, including the following:

When negotiating employment contracts with new employees.

Defending charges of various natures, including and not limited to driving charges, sexual harassment charges, racial vilification or discrimination charges.

Negotiates concerning redundancy payouts or fees incurred through seeking to increase the amount of any redundancy payout.

Evicting tenant/s whose term had expired.

The ATO sets out clear guidelines of the appropriate documentation needed in order to claim deductions from legal expenses. Generally, documentation needed includes:

Deciding where to allocate your assets can be confusing and even daunting, particularly if you aren’t confident in your knowledge of the current financial sphere.

Consider the following in’s and out’s of asset allocation to make the process much easier:

Set goals

Goal-setting is extremely important, particularly when it comes to your money. When deciding out where to allocate assets, you should set both short-term and long-term goals. If you are planning to save for a vacation or a new car, this would be a short-term goal, a mortgage would be a medium-term goal and your nest egg would be a long-term financial goal. The goals you set should be SMART; specific, measurable, achievable, realistic and timely. You should also revisit your SMART goals and assess how well you are doing, thus allowing you to make appropriate adjustments if need be.

Risks

The more open an individual is to risk, the greater the opportunities for where they allocate their assets. If an individual is open to investing in higher-risk assets, they can consider options such as investing in shares. If they are more attracted to low-risk assets, options such as a term deposit are more suitable.

Speak to a professional

If you make it known to friends and family that you are deciding where to allocate your assets, you will become inundated with tips and advice of what and where you need to invest. This can become overwhelming and more of a hindrance than a help. The best person you can talk to is a professional you trust, such as your financial advisor. They will be able to give you all the information you need, they will be able to answer all your questions, and they will be unbiased.

The Australian Tax Office is honing in on small businesses failing to comply with guidelines regarding appropriate record keeping.

Findings from the ATO’s Protecting Honest Business campaign indicated that one of the leading factors for small business failure is their poor record keeping practices. Small business owners are required to disclose particular information, and keep records of the following:

Income tax records

Income and sales records

Expense or purchase records

Year-end records

Bank records

Goods and services tax records

Employees and contractors records

Fuel tax records

By law, all Australian businesses must keep these records for a period of five years. These records must be in writing, either on paper or electronically. Dedicating time each week, fortnight or month to compile all the above-listed information will prevent you incurring fines and possibly losing your business.

No matter the kind of superfund you opt for, you will be subject to super fees. Understanding how these fees work and the difference they can make to your next egg is vital.

When it comes to superfund fees, there are two factors you need to get your head around; the kinds of fees you are being charged and the rate of fees you pay. Opting for a superfund based on these two factors can see you retire with hundreds of thousands more money.

You should be aware of the various types of fees you are being charged. If you would like to find out the fees you are being charged, you should do two things. Firstly, Google your fund’s product disclosure statement and scroll through to the fees section. You should see a list of different types of fees, with an explanation of what they are, how they are applied, and how often they will be incurred. Secondly, you should log in to your superfund account and take note of all the fees being charged to you. Investigate how closely these correspond and correlate with the product disclosure statement.

If you feel there are discrepancies, do not hesitate to contact your superfund or financial advisor and ask for clarification. It is worthwhile doing your research and comparing the fees you are being charged against other super funds and what they charge. Being complacent and not paying attention to your super is extremely irresponsible; the dividends you will receive later in life for being diligent now outweighs the burden of taking time to be informed today.

Exit fees: fees incurred for leaving or switching super funds. While this is a common fee, not all funds charge it.

Investment fees: fees incurred due to the cost of managing where your money is invested. These fees can fluctuate, depending on where your money is invested.

Activity-based fees: fees incurred for any activity you require your super fund to perform outside of the ordinary management of your account, such as a family law split fee.

Another major factor contributing to how much you accumulate in your super account throughout your working life is the rate of fees you pay. Plain and simple, some funds offer much lower fees than other, creating a difference of hundreds of thousands of dollars when it comes time to retire.

Generally, funds are categorised into three groups; low super fees, medium super fees and high super fees. Ultimately, you want to be in a fund that charges low super fees. In saying this, it’s not only about super fees, as some funds have medium-high super fees but also perform better based on investment strategy, meaning you will get more back from your investments.

The Australian Taxation Office is urging all businesses and individuals to take care in relation to avoiding the risk of fraud.

With a focus on criminals lodging fraudulent returns in order to obtain unwarranted refunds through accessing banking information that is not their own, the ATO recommends businesses and individuals practice the following:

Discussions with staff and clients

Keep your employees and your clients about safe behaviours to protect them from being vulnerable to criminals, such as not clicking on downloads, hyperlinks or opening attachments in unsolicited emails.

Protection on devices

Ensuring the devices you use for confidential information such as transferring funds and purchasing goods and services are all up to date with protective software, such as malware detectors and firewalls. Also, ensure autofill forms are not saved or used.

Proof of identity

Before taking on new clients, ensure they provide numerous pieces of proof of identity. You should also question discrepancies before lodging their tax returns.

Internal security

Ensure all employees have access to only what they need in order to perform their role within the company. When employees cease employment, cancel their AUSkeys.